December 2019 Newsletter
Another year draws to a close and what a year it’s been. By far the biggest story was the collapse of iconic travel brand Thomas Cook; the moral of the story perhaps “you ain’t too big to fail”. Though for many industry insiders, the writing had been on the wall for some time before the plug was eventually pulled.
Boeing probably hoped that the case of their technically deficient 737 Max plane would disappear into the sunset, but it has instead stayed with us and the wider world at large for the entire year with the picture getting bleaker for Boeing as each month passes. Profit before safety is the simple headline here and that arguably is still the core difference between Europe and America.
The year also saw the final chapter drafted in the short history of the Airbus A380 which was designed to change the world of aviation. Indeed, the aviation world changed ‘it’ rather than ‘it’ changing the world. The story of its demise is an interesting read and perhaps a case of the Economic theory behind the travel industry either being misunderstood or misinterpreted.
Also what we didn’t mention in the annual summary below was the change in our commercial allegiance from the HRG Group to BCD back in April. Jamadvice were the network partners of HRG (and prior to that, BTI as they were initially known) since 2001, in 2018, rival TMC, Amex, bought out HRG, an arrangement that clearly was not for us. Out of the blue, we were invited to become the Bulgaria Partner for BCD, another top three global Travel Management Company. The sudden increase in what was already a healthy workload was a massive undertaking for our existing staff who worked above and beyond the call of duty to absorb the extra workload. Eight months on and with increased staff numbers we are operating at levels not seen before in our twenty-seven-year history. We hope this will long prevail.
Wishing you all a Merry Christmas and a Happy and Prosperous New Year.
Jamadvice Travel | BCD Bulgaria
There seems to be a fascination with anything that’s technical and an ingrained mindset that “it must be better (than humans)”. Anyone who has spent hours listening to robotic messages on a telephone will emphasise. Everything in this world is cyclical and the moral of this story is don’t be in too much of a rush to replace humans with pieces of metal.
Robots given the boot
In the real world, only lip service is given to the appreciation of the human and the tech nerds always seem to win hands down when it comes to giving us what we really don’t want. Absolutely everything these days involves robots and avoids humans. “It’s cheaper” we are told, which may be the case, though that’s also open to doubt, but, despite the myth, there is no substitute for face to face human contact: period. Are we coming to the point where soon, if we want to talk to a human at the bank, at the government office, at the railway station, airport or hotel, we will have to pay extra? It almost feels like it. Are though, the innovators in this world starting to realise the errors of their ways?
In Japan, one hotel with a reputation for being innovative brought in 200 robot staff to do the job of humans: after the novelty wore off and their severe limitations became apparent, half of them were shown the scrap heap.
The limitations of the pieces of metal included not being able to deliver luggage, being unable to operate the photocopy machine and even trying to answer a guest who was, in fact, snoring in his room.
Political correctness knows no bounds with the anoraks and the noisy few and what was at first read with a snigger has already become a reality.
A sign of the times?
In these days of chronic, indeed painful political correctness, the latest example comes from the aviation industry in the USA who have agreed an industry “standard” with IATA (International Air Transport Association) to offer gender-neutral airline bookings.
Translated this means that from June 1st you needn’t add whether you are a Mr., Mrs., MS or Miss but can refer to yourself as either “U’” (undisclosed) or ‘’X’ (unspecified) as well of course as “Mx”.
No, it’s not April 1st, it’s simply a sign of the times. Perhaps though one wonders what certain religious orientated countries will do when they see such tickets!
A (long) lesson in Economics and the fact that logic does not always carry from the world of theory to the world of reality. Anyone who has been lucky enough to travel on an A380 will testify to a positive experience. Yet that alone does not guarantee economic viability. So the plane that “will revolutionise the way we travel” seems destined to disappear almost as fast as it appeared. Sadly.
Why the A380 failed!
It’s not often that a new aircraft catches the public’s attention in the same manner that the “Double Decker” Airbus A380 did when it took its first commercial flight back in 2007. The plane was the new king of the skies and was set to dethrone the classic Boeing 747, the original “jumbo” jet of the skies. In February 2019, Airbus announced they were ceasing production of the A380; a decision that came as no surprise to many within the industry.
Starting from the end and working backwards, by the time the last A380 rolls of the assembly line in 2021, some 251 will have entered service out of a hoped-for 700 – 1200. Out of the total in service, around 50% of these are operated by mega Gulf carrier; Emirates, the rest of the total is shared between 12 other airlines. So what went wrong for Airbus?
Back in the 1990’s, it was clear that the demand for air travel was growing exponentially and that to satisfy the demand, a new strategy would need to be deployed; this was perceived as needing more planes and that airports would have to grow bigger. This was the logical way of thought. One way to keep abreast of this growth – so the thinking became – was to make bigger planes to alleviate the pressure on landing slots at key airport hubs i.e. more passengers on larger planes with potentially fewer flights; or so the theory went. Whilst this type of rationale prevailed during the 90’s as being the view forward, by the time of that first commercial flight in 2007, the clock was already ticking down towards a seismic shift in aviation operations.
The traditional theory of how airlines operate assumes a hub and spoke theory where passengers in secondary locations connect through hub airports in prime locations from their point of origin to their point of destination. An example of this might be passengers in the USA who live in St Louis, Kentucky or Kansas all fly to NYC on smaller type planes (B737/Airbus 320 etc.) to connect onwards via larger planes (B 747/A 380) to London where they then swap to smaller planes once again for their onward travel from London to their destination of Manchester, Edinburgh or Belfast or any city that is connected to London. Airports like NYC and London were already busy airports and the focus was very much on how to get more passengers in and out of these places when faced with the obvious constraints of their landing slots being almost full. The aforementioned thinking sounded logical but logic is often overruled in the real world.
Just as the A380 was launched, new technology was finding its way into the manufacture of aircraft structures and new aircraft engines. This new technology in simple terms made planes dramatically more fuel-efficient with one of the resulting impacts being that a twin-engine plane could now achieve flight performance and hence distances previously unheard of and which were previously the domain of the larger four-engine aircraft. Not only that, these planes did not have to be mega size. Indeed, the cost of buying and operating the new breed of smaller planes such as the Boeing 777/787 and Airbus’s own 321, 330 and 350 series planes made them more profitable than the A380 whose economic basis was based on traditional economies of scale where more passengers meant more profit. There was also one other factor that needs to be mentioned and that was the safety certification (ETOPS) that now allowed the new breed of twin-engine planes to fly distances previously not allowed. The ETOPS rating now factoring in improved technology initially allowed planes to be up to 180 minutes from any airfield (for emergency purposes) with this figure then rising to 330 minutes. In short, most planes could now fly any international route far away from emergency landing strips safe in the knowledge that the technology flying these planes would facilitate numerous hours in the air even if one engine was out of working order. Flights in and around the Pacific were the obvious beneficiary of this relaxation.
Back to our ‘hub and spoke theory’”. This theory of airline operation was well established and set in stone. However, a fact is that secondary cities across the globe were and are still growing at twice the speed of the so-called megacities. Not all commerce and industry is based in these megacities, especially in the more developed parts of the world where also the financial ability and the need to fly is arguably the greatest amongst the population. Thus, from our ‘”hub and spoke’’ example, the use of smaller more efficient planes allowed these “Spoke” legs to be by-passed. The catchment area of Manchester could not perhaps support a daily 500 seater plane going to New York, but it could support a 250 seat plane that therefore provided the option for passengers to bypass travelling via London. Alternatively, it might be that demand could support 250 passengers bypassing NYC and flying direct from Kansas to London! An extension of that might also see that actually, two secondary cities like Manchester and St. Louis (example only) could indeed also support flights of 250 passengers; thus reducing the number of flights people are required to take from four to two. This is the gist of indeed how the aviation industry morphed over the past decade.
Also, it is often better for airlines to operate 2 x 250 seater planes than 1 x 500 seater! The costs with new machines might roughly be the same but from the passenger perspective, having more choice of flights is always seen as a better option. It’s also invariably better for the airlines as the smaller planes are easier to roster which provides flexibility in scheduling and fluidity to cater for surges in demand for a particular route.
In the short term, there will still be a benefit of sorts for the A380 to operate between certain points and indeed, the hub and spoke business model of Emirates lends itself to aircraft of size when it comes to connecting the hubs! Even for Emirates though, if you take their flights from Dubai to the UK, they do not only fly hub to hub to London – invariably with A380’s, but also other airports like Manchester, Birmingham and Glasgow. The same in Germany, Emirates don’t just fly from Dubai to the two German hubs of Frankfurt and Munich but also to Hamburg and Dusseldorf using smaller yet profitable aircraft. The net result is that using the German example, Emirates still carry the passengers from Germany but a) they probably gain new passengers because they don’t need to change any plane in Frankfurt or Munich and b) they can operate more flights with the same/greater profitability.
Finally in this epilogue, another reason for the demise of the A380: they have virtually no resale value! When we buy a car we always factor in the running costs what price the car will be worth when we come to sell it. For those with now, ageing A380’s the planes are virtually worthless. There is simply no demand for them. only 1 A380 has found a second-hand owner. The typical life span of the A380 would be around 20 years but after 10 years, the initial owner would probably be looking to sell on the machine and replace with new. This would also be a similar cycle for many other types of plane. Seeing that the plane is effectively worthless, the actual km cost of operating the machine then increases as the plane is not so much depreciated as wrote off as a potential asset, therefore, increasing the cost of tickets for people flying on it to cover the extra cost of operation. A vicious downward spiral.
There is absolutely no doubt that flying with an A380 is a wonderful experience and seldom a bad word is said about them by passengers. Sofia was graced two years ago by a Lufthansa A380 which itself drew large crowds to witness this unique event; such is the aura around the plane. No doubt there will be other failures in the aviation world just as there are successes; look at the Boeing 747 which launched in 1970 and which not only is still carrying passengers but is still being built for freighter work today, or the Boeing 737 aircraft, the mainstay of many an airlines short-haul set up. Many a plane spotter and many a passenger will come to miss the A380, let’s hope many more people do get the chance to fly on them before the eventually disappear forever.
The European Union’s laws are only there as a guidance to some countries and at times are considered simply a hindrance. There are many professions that EU citizens should legally be allowed to practice in France but the French have other ideas. EU laws are often ignored with total impunity; the problems ski teachers who are non-French face in France are legendary:
EU help to Ski Instructors
The European Commission says that it has adopted a new common training test for ski instructors to facilitate the recognition of their professional qualifications. The relevant EU Commissioner made the comment that “ski instructors, as other professional and service providers, should be able to benefit from the single market.”
However, that’s not likely to make it any easier for potential non-French ski instructors in France who has thus far been successfully blocked by the French authorities to protect the French ski instructors home territory. The French will no doubt impose some local laws about language, knowing the names of the flowers on each mountain and the history of each French mountain peak in an attempt to avoid EU laws. Neither will it stop them from having the right to check the ski instructor’s diplomas with the relevant issuing authority; obtaining a translated copy that has been legalised and notarized and signed by the relevant Embassy in Paris on the fourth Monday of each leap year.
It’s not so very long ago that the USP (unique selling point) of many top-end airlines was the quality of their IFE (inflight entertainment systems). Fast forward just a few years and IFE’s are almost redundant! If this shows anything it’s how fast technology comes and then goes.
It seems only yesterday when the latest IFE was the “big” differential for airlines as they tried to win over passengers from rivals. What is IFE you may ask? Its “In Flight Entertainment”. Fast forward, well, a few years and IFE seems to be following the dodo bird in the shape that it was initially presented. Etihad is just one of the airlines who are removing the seatback screens and instead, opting to provide download capability so passengers can stream content to their own tablets etc. This seems to be the way forward – for now.
When IFE systems were being introduced, one of their obvious downsides was the complexity of the wiring required to provide the service as well as the additional weight it created and we all know more aircraft weight means more fuel usage means greater operating costs. Etihad reckons that the will save 18 tonnes in aircraft weight per years which obviously means reduced costs for the gulf mega carrier who recently have found life a bit of a struggle.
So no more seatback screens then? Ah well, that maybe not entirely true! It seems that airline manufacturers are still offering the option of seatback screens to airlines who in turn seem to think (perhaps bizarrely) that they can be used for in-flight conferencing. A notion that might indeed have merit, though one can equally imagine significant push back from other passengers. What’s more disconcerting is that the new offerings indeed have cameras in them which would obviously allow for conferencing capability. Equally, as we all know, such cameras can be discreetly turned on remotely or even hacked from afar. The point being, that perhaps the only way to ensure no-one is watching you eat your third pack of pretzels or second glass of non-alcohol wine is to take a black bin liner with you and cover the screen. Perhaps designing a pocket/bag size item as such that slots over such headrest screens and is re-usable is a new business idea waiting for the next entrepreneur.
This story seems like the backdrop for a TV comedy. The use of Mobility scooters and even electric scooters, in general, seems to be reaching epidemic proportions and their use is not just the domain of the teenagers or youth of today; far from it.
Laugh or Cry?
Depending from where you originate, the Spanish resort of Benidorm can be viewed as many things. If you are unaware of its existence, think Sunny Beach but dating back four decades. TV series have been built around the resort and its reputation seems not to worry most of its visitors. Unlike Sunny Beach whose rowdy element are usually categorized as being “rowdy teens” though teens seem these days to be significantly older than 19 years of age the tag originates from, Benidorm has an altogether different core clientele. Think retirement!
Benidorm is a hotspot for retirees and the economy in many ways revolves around this group of people as well as absolutely anyone who likes cheap booze, fantastic beaches and food that’s never going to test the Michelin Good Food Guide. Love it or hate it; it’s been around for donkeys’ years. That still, however, doesn’t stop the jaw from dropping with the antics that go on there.
It’s hard whether to laugh or cry when you hear that the resort is clamping down on mobility scooters, electric scooters and Segway’s that are rode on pavements (remember we are talking over 65’s on mobility scooters). The problem being that such modes of transport, but in particular the Mobility Scooter, have become the choice of all and sundry as a means to get around even though the drivers themselves are fit and able. The scooters are also now restricted to driving at 20kmph and their drivers must wear a helmet and have either a fluorescent jacket or bell to alert the public.
Funnily enough, Benidorm is not the first to suffer implement such rules as both Barcelona and Madrid have also limited the use of such vehicles.
The tender to operate Sofia Airport has dragged on for years and in summer, the final leg in appointing a winner was made. Except, that in this part of the world nothing is quite so black and white. The choice of the winners has been challenged in court and re-confirmed and the battle has gone to a higher court. It remains to be seen what the (political) outcome will be, with the challenge to the ruling being based on the grounds that their bid did not correspond with the tender requirements. As well as the fact their plans seem to be to build on land they don’t own! Even the mention of Munich Airport being involved in the winning bid is somewhat smoke and mirrors as they are bit-part players and won’t be the ones operating the airport, or so the point is made by the other bidders.
The long-running saga that is the Tender for running Sofia Airport appeared to edge closer to some sort of decision recently with the initial awarding of the contract to French infrastructure investor Meridiam and Munich Airport; much to the chagrin of the other four participants who each promptly filed complaints.
The complaints would appear to have some merit as illogically they offered only the concession fee and lowest financial investment! Some of their proposals would also appear to fly against the very criteria they were supposed to fill.
More will follow on this score we are sure and it would be wise for the winners to keep the champagne in the fridge for some time yet.
Remember, the initial winners to supply the Bulgarian military with fighter planes was a Swedish company but that was soon binned; the same may ensue here. It should also be remembered that Sofia Airport was opened as recently as December 2006, it is thus hardly ancient yet the building quality and the deterioration in the facility would bring into question the quality of the previous build and /or the materials used as well as the oversight in its construction. Allied to that, the lack of ability to adequately maintain the facility really does result in a significant investment being required to bring it up to scratch.
By the way, Munich Airport would only be a sort of contractor and not the airport operator so forget the notion that German efficiency would be brought to the local fore.
Travel across the globe is booming, that, however, did not help in preventing the demise of arguably the best-known travel brand; Thomas Cook. One can debate why the company failed but at the root of everything appears to be just rank bad (overpaid) management:-
178 Years and out
Arguably the most iconic of travel brands, Thomas Cook has collapsed after 178 years of business leaving a train of debris and much recrimination behind it. The end came on September 22ndwhen the Tour Operator failed to come up with an additional 250M Euro of investment to satisfy the banks after already coming up with 900m from its existing investors in a bid to stay solvent.
As the dust still settles, some 22,000 people worldwide are set to lose their jobs with up to 450,000 holidaymakers across the globe who are already on holiday set to be impacted. Hundreds of thousands more with holiday s booked for the future will also face the same scenario.
For many, including Thomas Cook clients from its home market of the UK, the fact that it is standard practice for Tour Operators to offer protection for such a situation means that at least the vast majority won’t be financially impacted to severely but most will be inconvenienced in some way or other. Replacement aircraft and crews will operate the flights Thomas Cook’s own aircraft were due to fly and passengers will return back to their home countries as close to their scheduled time as is possible.
The Tour Operator announced a massive 1.6 billion GBP loss this past winter and from that moment on, the writing was on the wall. Just why a firm with 178 years’ experience in travel should meet such a sad end is an altogether different question with no single answer, but plenty of warning lights appeared over the years that were not properly addressed.
One travel expert said that Thomas Cook was ‘’not equipped for the 21stcentury’”. A brash statement but not one without substance. Much of the company expense was in the High Street in bricks, mortar and retail staff whilst the rest of the competition was going ‘online’. Whilst it is still true that the package holiday has still a significant following in numerous markets, including the UK, the way people research their travel and then book it is something that Thomas Cook could not find a happy balance with. Additionally, the last few years has seen the company impacted by the “withdrawal” of capacity due to terrorist threats in Turkey and North Africa, both regions Thomas Cook had invested heavily in with its products. Indeed, the Bulgarian Black Sea was also an area of focus for the Company in the Short Haul European Market and no doubt many hotels in the country will face a challenge to grab contracts for summer 2020 with other Operators, the majority of which will already have been signed by their rivals.
The talk also abounds of excessive Director salaries and bonuses, rank bad business decisions and a Coup D’état in 2014 when the then CEO, Harriet Green, a travel business outsider, was ousted. She had begun to successfully turn around the ailing business during her two years in situ, taking it from a worth of 148 m GBP to 2 billion GBP. She had though upset someone as apparently an all-male Management Board met in secret and ousted her! It was downhill at breakneck speed from that moment on. This particular story is set to gain more media coverage as the failure unfolds and the finger of blame starts to be pointed.
So the moral of the story once again is you are never too big or too historic to fail. Thomas Cook founded in 1841 and an icon in the world of travel joins Hogg Robinson, founded in 1845 as victims of the modern world where bad decisions and personal interest resign them to the graveyard of travel.
Slovenian national carrier Adria may not be the largest airline in the world and probably very few local people have ever flown with them. Their demise, following on in the recent past from other airline failures in our region such as Malev, Cyprus Airways , SkyEurope etc shows just how volatile running an airline is. It is interesting to analyse why these airlines were allowed to fail (by the EU) when others such as Olympic and Alitalia were, or indeed, have been allowed to continue operations even though in reality their financial position is worse than those who suffered at the guillotine:
Following hard on the heels of Thomas Cook grabbing the headlines in the travel industry, Slovenian national carrier Adria Airways has ceased operation. Adria was formed in 1961 and operated a fleet of 20 aircraft and flew to 25 cities across Europe as well as operating flights on a sub-contract basis for other airlines in the region including Austrian, who also suffered a knock-on effect of the collapse
Two other airlines that you probably didn’t hear about who also collapsed in September were XL Airways and Aigle Azur.
It seems like being a small (ish) regional carrier has a limited future. Who will be next airline failure in the industry are asking?
The longer the Boeing 737 max saga runs the worse it seems to get for the airline. In short, the airline seems to have either been aware of the technical issues the plane faced and chose to ignore them; it then tried to blame all and sundry for the initial crash which resulted in 189 deaths and only when a second crash occurred did it start to understand this couldn’t be swept under the carpet. Even now the story gets worse for Boeing as documents come to light showing a total ineptness both in their own technical competence as well as in the authorities who ignored the warnings. Boeing no doubt will survive, but if ever one needed a case study of how blasé and ignorant corporate America could get: this is it. As Boeing announces the temporary shut down of some of its assembly lines, it’s the impact downstream in the supply line where the impact will be felt the most. The story is yet far from finished. Question: would you let your family fly on a Boeing 737 Max?
The never-ending saga of the faulty Boeing 737 Max aircraft rumbles on with the latest prediction that it will be March 2020 at the earliest before the plane is allowed back in the skies.
That’s not good news for Boeing who were hoping they could get the problems with the plane fixed before the New Year.
What is happening with this plane and the massive negativity surrounding it leads to the question “would you feel comfortable letting your family fly on it?”. Once the plane is operational again we half suspect that a new question from people booking travel which is seldom asked at present will be “what type of plane is it?”.
As with all matters like this, people will eventually forget; that though may take longer than Boeing would like.
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